The Government has back tracked on controversial changes to Agricultural Property Relief and Business Property Relief which were due to come into force in April 2026. Proposed changes would have meant that agricultural assets valued at over £1 million would be subject to inheritance tax where they had previously been exempt.

In an announcement over Christmas, the Treasury unexpectedly revised proposals to change agricultural property relief and stated that from April this year, Inheritance tax will be charged at 20% (half the normal IHT rate of 40%) on agricultural or business assets valued at over £2.5million as opposed to assets valued at just over £1million.

The recent revision to Agricultural Property Relief and Business Property Relief now means that a couple will be able to pass on up to £5 million of agricultural or business assets between them on top of the existing nil rate allowances (£325,000 per person), taking the total which can be passed on without paying Inheritance Tax to £5,650,000.

In a statement to the BBC – Gavin Lane, President of the Country Land and Business Associations, said: “The government deserves credit for recognising the flaws in the original policy and changing course. However, this announcement only limits the damage – it doesn’t eradicate it entirely.”

Landowners and farmers have been protesting vigorously since Rachel Reeves used her first budget in November 2024 to announce she was scrapping a 1980s policy that gave 100% inheritance tax relief on agricultural and business assets. Part of the reasoning behind Rachel Reeves’ reduction in relief was to stop speculative investors from buying farmland simply to avoid tax. Many people argued that this had unfairly penalised working farms and smaller estates, already impacted by Brexit and climate change, as it jeopardised financial viability if the next generation were forced to sell property assets to pay inheritance tax.

The government now says their recent reversal on Agricultural Property Relief will almost halve the projected number of farm estates that will need to pay inheritance tax in 2026/27 from 2000 to 1100.

Inheritance tax still remains a significant issue for many family estates and farms, and Life Insurance is a useful tool to help reduce the financial burden on beneficiaries.

One way some landowning families will try to limit the Inheritance Tax burden on subsequent generations is to gift large parts of their property during their lifetime. Gifts to individuals made over 7 years before death fall outside the scope of inheritance tax, but if the person dies within 3 years of the gift, Inheritance Tax is charged at 100%. Gift Inter Vivos insurance protects beneficiaries during this vulnerable period. These policies cover any Inheritance tax liability over the full 7 years, but during the last 4 years, as the Inheritance Tax Liability tapers down, the premium payments decrease proportionately.

Whole of Life policies can be used to cover the full cost of Inheritance tax for beneficiaries whenever a property owner dies, and if placed in trust, the lump sum benefit is currently exempt from Inheritance Tax. Because these policies pay out a significant sum whenever the person dies rather than during a specific term, premiums are much higher than those for a short-term life policy, which might be used to protect a mortgage debt over a distinct period.

Probate Relief is a term life policy designed to protect a partner during the immediate aftermath of death and provide financial liquidity – providing a tax-free lump sum in advance of probate and at a time when your partner may not have full access to your finances.

To find out how different Life Insurance solutions can help mitigate the impact of changes to Agricultural Property Relief and Business Property Relief, contact our Life Insurance specialist, Ali Adham.